Audit (A-03-07-00222)

Executive Summary

For State fiscal years (FY) 2005-06 and 2006-07, two hospitals in Pennsylvania did not retain their Medicaid disproportionate share hospital (DSH) payments, and the universities that received the money may not have used it to help offset the medical assistance share of their medical education costs in compliance with the State plan amendments approved by the Centers for Medicare & Medicaid Services (CMS). The two hospitals redirected a total of $35.1 million (Federal share) to their university medical schools but did not require the medical schools to account for how they used the funds. Accordingly, we could not determine whether DSH funds were used in compliance with the State plan amendments. Hospital officials told us that the State had instructed the hospitals to redirect the funds to the universities associated with the hospitals.

We recommended that the State work with CMS to resolve (1) $35.1 million (Federal share) in DSH payments redirected to university medical schools in State FYs 2005-06 and 2006-07 and (2) DSH payments redirected to university medical schools after our review period, including any portion of the $25.5 million estimated Federal share for State FY 2007-08.

In comments on our draft report, State officials agreed to work with CMS on any future State plan amendments pertaining to academic medical centers but said that they were not aware of any Federal regulation or legislation that requires the hospitals to retain their DSH payments. We revised our second recommendation to acknowledge CMS's approval of the State plan amendment for State FY 2007-08 subsequent to our review. We support our recommendations, as revised.